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Daily Pivots: (S1) 1.2631; (P) 1.2710; (R1) 1.2752; More...

GBP/USD is still holding above 1.2615 minor support with today's decline. Intraday bias remains neutral first. Decisive break of 1.2615 will confirm that corrective rebound from 1.2486 has completed at 1.2810 already. Retest of 1.2486 should be seen next, and break there will resume whole decline from 1.3433 to 1.2298 cluster support zone.

In the bigger picture, price actions from 1.3433 medium term are seen as correcting whole up trend from 1.0351 (2022 low). Deeper decline could be seen to 38.2% retracement of 1.0351 to 1.3433 at 1.2256, which is close to 1.2298 structural support. But strong support is expected there to bring rebound to extend the corrective pattern.

Daily Pivots: (S1) 1.0443; (P) 1.0487; (R1) 1.0510; More...

EUR/USD recovered notably after dipping to 1.0452 briefly and intraday bias is turned neutral again. Outlook is unchanged that corrective rise from 1.0330 should be completed at 1.0629, and further decline is expected. Below 1.0452 will bring retest of 1.0330, and then resume the fall form 1.1213 to 61.8% projection of 1.0936 to 1.0330 from 1.0629 at 1.0254. Also, in this case, sustained trading below 1.0404 key fibonacci level will carry larger bearish implication.

In the bigger picture, focus stays on 50% retracement of 0.9534 (2022 low) to 1.1274 at 1.0404. Strong rebound from this level will keep price actions from 1.1273 (2023 high) as a medium term consolidation pattern only. However, sustained break of 1.0404 will raise the chance that whole up trend from 0.9534 has reversed. That would pave the way to 61.8% retracement at 1.0199 first. Firm break there will target 0.9534 low again.

The Euro rebounded broadly today, buoyed by reassurances from a number of ECB officials that the central bank remains committed to a gradual approach to policy easing. Yesterday's 25bps rate cut appears to have had solid consensus backing, with no indications that a more aggressive 50bps cut was even seriously debated. Despite recent economic softness in the Eurozone, ECB is maintaining a measured strategy without overreacting to weak activity data. Though the Euro remains lower against the Dollar for the week, its recovery against Sterling and Swiss Franc adds momentum to its performance.

Sterling, however, faced a challenging session after UK GDP data revealed a contraction for October, undermining confidence in the government’s recent pledge to boost economic growth. While this setback adds pressure to an already fragile outlook, it is unlikely to shift BoE’s stance on policy easing significantly. A BoE survey released today highlighted that long-term inflation expectations have risen to 3.4% in November, the highest level since May 2022, up from 3.2% in August. Additionally, the survey revealed that 33% of respondents expect interest rates to rise in the next 12 months, compared to 29% in the previous quarter. These findings suggest BoE will maintain its gradual approach to rate adjustments.

Overall for the week so far, Dollar is currently the strongest, followed by Aussie, and then Loonie. Yen is the worst, followed by Swiss Franc, and then Kiwi. Euro and Sterling are positioning in the middle.

In Europe, at the time of writing, FTSE is up 0.04%. DAX is up 0.08%. CAC is up 0.22%. UK 10-year yield is up 0.0185 at 4.383. Germany 10-year yield is up 0.371 at 2.248. Earlier in Asia, Nikkei fell -0.95%. Hong Kong HSI fell -2.09%. China Shanghai SSE fell -2.01%. Singapore Strait Times rose 0.03%. Japan 10-year JGB yield fell -00103 to 1.041.

ECB officials signal more rate cuts Ahead, gradual path to neutral

A day after ECB reduced its deposit rate by 25 basis points to 3.00%, key ECB officials provided insights into the central bank's outlook, reinforcing expectations for further easing in 2025. Comments from various members of the Governing Council suggest a shared commitment to a cautious but consistent approach to policy normalization.

French ECB Governing Council member François Villeroy de Galhau explicitly stated, “There will be more rate cuts next year, more rate cuts plural,” emphasizing alignment with market forecasts. The swap market currently prices around 120 basis points of rate reductions by the end of 2025.

Similarly, Spanish member José Luis Escrivá noted the prevailing consensus for “moves of 25 basis points downwards,” allowing for regular assessment of disinflationary progress.

Irish ECB member Gabriel Makhlouf highlighted the clarity in the rate trajectory while maintaining a data-driven approach: “The exact pace and number of further reductions depend on inflation outturns continuing to move in line with our projections.”

Portuguese member Mário Centeno added that rates could approach the 2% level within a few quarters, barring new economic shocks.

Comments from Luxembourg’s Gaston Reinesch pointed to the possibility of reaching a 2.5% deposit rate by early spring, implying consecutive 25bps cuts in January and March.

Latvian member Martins Kazaks kept the door open for larger adjustments if warranted, while Austria’s Robert Holzmann reiterated alignment with forecasts, noting that rates would ultimately settle closer to neutral.

Eurozone industrial production stagnates in Oct

Eurozone industrial production stagnated in October, recording 0.0% mom growth, in line with expectations. The data reflects mixed performance across sectors. While output for capital goods rose by 1.7%, intermediate goods production remained unchanged. On the downside, energy production dropped sharply by -1.9%, while durable and non-durable consumer goods contracted by -1.8% and -2.3%, respectively,.

Across the broader EU, industrial production showed a modest increase of 0.3% mom, driven by strong gains in select countries. Ireland led the pack with a 5.7% increase, followed by Denmark at 5.4% and Poland at 3.5%. However, significant declines were observed in Lithuania (-7.5%), Belgium (-6.2%), and Croatia (-3.9%).

UK economy contracts -0.1% mom in Oct, dragged down by weak production

UK GDP fell by -0.1% mom in October, disappointing expectations for 0.1% mom growth. The decline was primarily driven by a -0.6% mom contraction in production output, with no growth observed in services and a -0.4% mom decline in construction output.

On a rolling three-month basis, GDP showed a marginal increase of 0.1% in the period ending October, compared to the prior three-month period. This modest growth was supported by a 0.1% expansion in services and a 0.4% rise in construction output. However, production output contracted by -0.3%, weighing on overall performance.

Japan's Tankan Survey: Manufacturing Confidence Improves to 14

Confidence among Japan’s major manufacturers showed a modest recovery in Q4, breaking a two-quarter decline. The Tankan large manufacturing index rose to 14 from 13, slightly exceeding market expectations. However, the outlook dipped marginally from 14 to 13, though still better than the anticipated 11.

In contrast, the non-manufacturing sector, which includes services, saw its index decline to 33 from 34, marking the first deterioration in two quarters. The outlook for non-manufacturers held steady at 28.

On a bright note, large Japanese companies across sectors plan to boost capital expenditure by 11.3% in the fiscal year ending March 2025. This is a notable increase from the 10.6% projection in the September survey and surpasses market forecasts of 9.6%.

NZ BNZ PMI falls to 45.5, 21st month of contraction

New Zealand’s BNZ Performance of Manufacturing Index dipped from 45.7 to 45.5 in November, marking its lowest reading since July 2024 and extending the contraction streak to 21 consecutive months. Despite some improvement in select components, the sector remains under significant strain, highlighting the challenges of achieving a meaningful turnaround.

Production weakened further, dropping from 44.0 to 42.5, signaling continued struggles in output. New orders also plunged from 48.5 to 44.8, underlining the persistent lack of demand. In contrast, employment improved modestly from 46.0 to 46.9, and finished stocks edged higher from 47.8 to 49.3. Deliveries saw the most notable recovery, rising from 44.9 to 49.9, yet still narrowly missed returning to expansion territory.

The sentiment among respondents remains predominantly negative, with 56% of comments in November reflecting pessimism, slightly up from 53.5% in October. Recurring concerns revolve around weak order volumes and the enduring pressures of high living costs. However, this negativity has moderated from its peak of 71.1% in mid-2024, suggesting some stabilization.

Doug Steel, Senior Economist at BNZ, noted that while manufacturers are beginning to show improved confidence about the future, “the main message of a manufacturing sector still under significant pressure remains. There is scant evidence of a general turnaround in activity to date.”

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.0443; (P) 1.0487; (R1) 1.0510; More...

EUR/USD recovered notably after dipping to 1.0452 briefly and intraday bias is turned neutral again. Outlook is unchanged that corrective rise from 1.0330 should be completed at 1.0629, and further decline is expected. Below 1.0452 will bring retest of 1.0330, and then resume the fall form 1.1213 to 61.8% projection of 1.0936 to 1.0330 from 1.0629 at 1.0254. Also, in this case, sustained trading below 1.0404 key fibonacci level will carry larger bearish implication.

In the bigger picture, focus stays on 50% retracement of 0.9534 (2022 low) to 1.1274 at 1.0404. Strong rebound from this level will keep price actions from 1.1273 (2023 high) as a medium term consolidation pattern only. However, sustained break of 1.0404 will raise the chance that whole up trend from 0.9534 has reversed. That would pave the way to 61.8% retracement at 1.0199 first. Firm break there will target 0.9534 low again.

A day after ECB reduced its deposit rate by 25 basis points to 3.00%, key ECB officials provided insights into the central bank's outlook, reinforcing expectations for further easing in 2025. Comments from various members of the Governing Council suggest a shared commitment to a cautious but consistent approach to policy normalization.

French ECB Governing Council member François Villeroy de Galhau explicitly stated, “There will be more rate cuts next year, more rate cuts plural,” emphasizing alignment with market forecasts. The swap market currently prices around 120 basis points of rate reductions by the end of 2025.

Similarly, Spanish member José Luis Escrivá noted the prevailing consensus for “moves of 25 basis points downwards,” allowing for regular assessment of disinflationary progress.

Irish ECB member Gabriel Makhlouf highlighted the clarity in the rate trajectory while maintaining a data-driven approach: “The exact pace and number of further reductions depend on inflation outturns continuing to move in line with our projections.”

Portuguese member Mário Centeno added that rates could approach the 2% level within a few quarters, barring new economic shocks.

Comments from Luxembourg’s Gaston Reinesch pointed to the possibility of reaching a 2.5% deposit rate by early spring, implying consecutive 25bps cuts in January and March.

Latvian member Martins Kazaks kept the door open for larger adjustments if warranted, while Austria’s Robert Holzmann reiterated alignment with forecasts, noting that rates would ultimately settle closer to neutral.

Eurozone industrial production stagnated in October, recording 0.0% mom growth, in line with expectations. The data reflects mixed performance across sectors. While output for capital goods rose by 1.7%, intermediate goods production remained unchanged. On the downside, energy production dropped sharply by -1.9%, while durable and non-durable consumer goods contracted by -1.8% and -2.3%, respectively,.

Across the broader EU, industrial production showed a modest increase of 0.3% mom, driven by strong gains in select countries. Ireland led the pack with a 5.7% increase, followed by Denmark at 5.4% and Poland at 3.5%. However, significant declines were observed in Lithuania (-7.5%), Belgium (-6.2%), and Croatia (-3.9%).

Full Eurozone industrial production release here.

• USDCHF bounces back, dismisses bearish risks below 0.8800
• Bulls take control, aim for new higher highs

USDCHF staged an impressive rebound after falling as low as 0.8733, an action which initially seemed like the completion of a bearish head and shoulders pattern below the 200-day simple moving average and the 0.8800 number.

Now back in a bullish channel, the pair is willing to meet November’s high of 08956. There is more fuel in the tank according to the technical indicators as the RSI and the stochastic oscillator are rising and are still some distance below their overbought levels. Another encouraging sign is the bullish cross between the 20- and 200-day SMAs, which signals a trend continuation to the upside.

If the price were to close above the 0.8950 zone, the rally could gear up to the 0.9040 barrier, the 78.6% Fibonacci retracement of the previous downtrend. A victory there could provide fresh impetus toward the 0.9070-0.9100 constraining region, while a faster rally could reach the 0.9150 mark.

On the downside, sellers may wait for a slide below the 20-day SMA at 0.8840 before targeting the 50% Fibonacci of 0.8800. An extension lower could pause near the 50-day SMA at 0.8750 and if this cracks as well, putting the upward trend into question, there might be a quick decline toward the 38.2% Fibonacci of 0.8700.

In summary, USDCHF is bullish in the short-term picture and could mark new higher highs if the 0.8950 bar gives the green light.

• NZDUSD continues the strong selling interest
• Stochastic and RSI keep moving south

NZDUSD plunged to a fresh lower low, recording a 26-month low at 0.5756. The pair is endorsing the steep descending tendency that started on September 30 with the technical oscillators confirming the negative momentum. The stochastic is standing in the oversold area, while the RSI is falling near the 30 level.

If the market continues with its bearish structure, the next levels for traders to keep in mind are the round numbers of 0.5700 and 0.5600 before the October 2022 bottom at 0.5510.

On the other hand, if the bulls gain control, the pair could touch the 0.5770 immediate resistance, followed by the 0.5815 level and the 20-day simple moving average (SMA) at 0.5850, which coincides with the downtrend line. A break above this area could pave the way for a test of the 0.5920 resistance ahead of the 50-day SMA at 0.5940.

In a nutshell, NZDUSD is significantly heading south in the short-term view, being ready to exit the long-term trading range of 0.6380-0.5770.

Gold prices stabilised around 2,690.00 USD per troy ounce on Friday. The quotes fell by almost 1% in the previous session, as investors assessed the latest US economic data. The statistics prompted a rally in the yields of US treasury bonds.

US manufacturing prices rose more than expected in November, fuelling concerns about the future trajectory of inflation, which could climb further and remain above the Federal Reserve's 2025 target.

Meanwhile, initial claims for unemployment benefits reached a two-month high, significantly exceeding forecasts and underscoring risks of a deterioration in the US labour market.

Investors continue to expect the US Federal Reserve to lower interest rates by 25 basis points next week. They also anticipate future rate cuts in 2025, although their magnitude is uncertain.

A Federal Reserve rate cut is a positive signal for Gold. As the precious metal does not generate coupon yield, rate reductions lower the opportunity cost of holding Gold, making such investments more attractive for traders.

Technical analysis of XAU/USD

The Gold market has established a consolidation range around the level of 2,675.55. Following an upward breakout, a growth wave pushed the price to 2,726.26. A corrective movement towards 2670.66 is unfolding, after which another upward movement towards 2,743.85 is anticipated. This bullish scenario is supported by the MACD indicator, with its signal line positioned above zero and indicating upward momentum.

On the H1 chart, Gold is undergoing a correction towards 2,670.66. A rise to 2,697.77 could occur shortly, followed by a potential decline to the same level. Once this target is achieved, the possibility of initiating a new growth wave to 2,735.70 is expected, with a possible further extension to 2743.85. This analysis is corroborated by the Stochastic oscillator, whose signal line is currently above 50 and moving towards 80, suggesting continued upward potential.

• RBA has shifted to a less hawkish monetary policy stance.
• The interest rate swaps market has started to price in a higher chance of the first RBA interest rate cut to come in February 2025.
• The 2-year and 10-year yield spreads between Australian government sovereign bonds and US Treasuries continued to narrow.
• Growing risk for AUD/USD to stage a major bearish breakdown below 0.6360.

The price actions of the AUD/USD have tumbled as expected since our last publication and hit the 0.6400/0.6360 major support zone as highlighted. The Aussie dollar was the worst performer among the major currencies as it shed -2.70% against the US dollar based on a one-month rolling basis as of 13 December.

RBA has turned less hawkish

Fig 1: Major trends of 2-year & 10-year yield spreads of AU sovereign bonds/US Treasuries as of 13 Dec 2024 (Source: TradingView, click to enlarge chart)

Even though the Australian central bank, RBA maintained its policy cash rate at 4.35% during its last monetary policy meeting of 2024 on Tuesday,10 December, unchanged for the ninth consecutive time, RBA Governor Bullock has sounded less hawkish now versus her prior press conferences.

During her press conference on Tuesday, she highlighted inflationary pressures had declined in Australia, and RBA officials had also taken notice of the weakness in the private sector of the economy. Hence, it is a dovish tilt that moves in line with the tonality of RBA’s latest monetary statement which stated, “some of the upside risks to inflation appear to have eased”.

The interest rate swaps market has started to price in a higher chance of the first RBA interest rate cut to come in early Q1 next year with a chance of around 70% on a February easing. The RBA is the sole developed nation central that has yet to cut interest rates, other than the Bank of Japan (BoJ) which is an outlier.

In addition, the 2-year and 10-year yield spreads between Australian government sovereign bonds and US Treasuries have continued to narrow and are trading at -0.28% and -0.03% respectively (see Fig 1). These observations suggest that Australia’s fixed-income market is getting less attractive than US fixed-income instruments which indirectly may assert longer-term downside pressure on the AUD/USD.

Bearish momentum remains intact

Fig 2: AUD/USD medium-term& major trends as of 13 Dec 2024 (Source: TradingView, click to enlarge chart)

The price actions of the AUD/USD have continued to oscillate within a medium-term descending channel since its retest on the long-term secular descending trendline resistance from February 2021 swing high on 30 September 2024.

It has broken below a major ascending trendline from the 13 October 2023 swing low and it is now testing the major support at 0.6360 (swing lows of 26 October 2023, 19 April 2024, and 5 August 2024).

In addition, the daily RSI momentum indicator has continued to exhibit bearish conditions which suggests further potential weakness in the price actions of AUD/USD.

0.6560 key medium-term pivotal resistance (also the 50-day moving average), and a break with a daily close below 0.6360 may trigger a multi-week to multi-month impulsive down move sequence with the next medium-term supports coming in at 0.6200 and 0.6130.

However, a clearance above 0.6560 negates the bearish tone for a potential squeeze up to retest the next medium-term resistances at 0.6690 and 0.6810.

Today, the UK GDP changes for October were published, as reported by Forex Factory (month-on-month):

→ Actual = -0.1%;

→ Forecast = +0.1%;

→ Previous = -0.1%.

The data revealed a slowing UK economy, defying analysts’ optimistic expectations. According to Reuters and other outlets, the latest GDP figures:

→ Could strengthen traders’ expectations of a more rapid interest rate cut by the Bank of England in 2025;

→ Undermine the target announced last week by Prime Minister Keir Starmer to make the UK the fastest-growing economy among G7 nations.

Technical Analysis of the GBP/USD 4-Hour Chart

→ From its December high (when a false breakout of the psychological 1.29 level occurred), the pound has weakened by approximately 1.4%, with the RSI indicator dipping into oversold territory for the first time this month.

→ The bullish trajectory (highlighted in blue), formed since late November, has lost its relevance after a breakout, suggesting bears are attempting to resume the downtrend within the red-shaded channel.

→ The 1.2615 level, which has repeatedly influenced the price (marked with arrows), may continue to act as support.

Looking ahead, the Bank of England’s meeting next Thursday is likely to trigger heightened volatility. While interest rates are expected to remain unchanged, any surprises could significantly impact the current bearish momentum.

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